$40 a barrel and going up

December 17, 1980

As 1980 draws to a close, the American people and American industry can take some satisfaction in lessening United States dependence on foreign oil. Production of energy increase this year. Significant gains also were registered in conservation by households and businesses. In light of these achievements, the nation has reason to be hopeful that the troubling trend of growing dependence on foreign oil which marked the decade of the 1970s can be reversed.

If anyone is inclined to be complacent, however, he had better think twice. The battle has only begun. The announcement by Saudi Arabia of a $2-a-barrel increase in the price of oil (to $32 a barrel) is a sharp reminder of the extent to which the US remains captive to OPEC. The Saudi move, taken in an effort to restore unity to the oil cartel, was followed by announcement of a new range of prices for the 13 OPEC nations up to $41 a barrel. Some experts forecast prices will reach as high as $50 a barrel by next summer, with shortages developing. Be that as it may, even this week's OPEC increase will mean higher fuel prices for Americans, more inflation, and a worsening of the nation's balance of payments problem. They will also place added burdens on the developing countries and some industrial nations which are even now staggering under heavy oil-import debts.

Energy must thus continue to be a central focus of the US government's effort to restore a sound economy, at home and abroad. President-elect Ronald Reagan sent out some dubious signals during the election campaign by advocating abandonment of the federal 55- mile-per-hour speed limit, talking overoptimistically about the reserves of Alaska's North Slope, downplaying conservation, and conveying the impression he would reverse US policy on the Arab-Israeli dispute. But we suspect the Mr. Reagan, tutored by such knowledgeable member of his cabinet-to-be as Donald Regan and Caspar Weinberger, will be quickly confronted with the sober realities of America's energy picture.

One of the realities is that, despite increased drilling and an upturn in US oil output in 1980, the general trend of production continues to be downward. Even if new petroleum finds and enhanced recovery methods help out matters, most specialists believe these will not enable the US to do more than hold production levels steady. Coal and nuclear power, for their part, have to surmount environmental controversies, while development of synfuels and solar power will take time. Abroad, meanwhile, the oil outlook is clouded by such factors as the war betwen Iran and Iraq, the continuing turmoil in Iran, the unresolved Arab-Israel conflict, and the long- term potential for political disorder in such key oil-producing countries as Saudi Arabia and Kuwait.

Logically, the broad lines which the Reagan administration will therefore have to pursue are not likely to differ substantially from those hammered out by the Carter administration. Pragmatism will dictate decisions and choices. On the supply side, the production of coal must be spurred and generating stations converted from oil and natural gas to coal -- making sure, however, of maintaining necessary environmental standards. Nuclear power plants now under construction must be completed. Synthetic fuels developmetn must go forward, as it undoubtedly will with higher oil prices making synfuels increasingly attractive. The strategic oil reserve must at long last be filled (although that would be only a temporary solution in event of an oil-import cutoff).

On the demand side, further savings of energy can be achieved, especially in the transport sector and in the retrofitting of houses with insulation. The creditable record of the US in reducing energy use in the past few years must not weaken the resolve to find new ways of curbing consumtion and introducing efficiences.

Not least of all, Mr. Reagan will have to pursue a foreign policy that not only assures peace in the world but makes it possible to assure the flow of oil to the US. Certainly any slackening of pressure to achieve a comprehensive peace in the Middle East would be to the nation's economic as well as political disadvantage.

While scouring the scene to complete his cabinet appointments, in short, the President- elect would do well to keep a sharp eye also on the impact of the decisions taken by OPEC. These actions are bound to be a major factor of concern in the early days of the new presidency.

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